a16z Dialogue with Circle Founder: Arc is more than just a public blockchain; it is the foundation of the machine economy

Written by: a16z crypto
Compiled by: Luffy, Foresight News

Circle's initial goal was to bring the US dollar onto the internet, allowing it to circulate anywhere. After more than a decade of deepening its efforts in this field, the company's co-founder and CEO Jeremy Allaire began to ponder: What will happen when internet users increasingly become AI?

He engaged in a dialogue with Chris Dixon and Robert Hackett to explore the underlying logic of this new machine economy and the impact it will have on credit, commerce, and global financial infrastructure. Below is the content of the conversation:

Why Develop a New Chain, Arc?

Robert Hackett: Today's guest is Circle co-founder and CEO Jeremy Allaire, who has just launched the self-developed blockchain Arc mainnet; along with a16z crypto founding partner Chris Dixon.

Jeremy, I met you back when I was a reporter for Fortune magazine. I have witnessed Circle's multiple transformations: from Bitcoin consumer business, to a payment product similar to Venmo called Circle Pay, and then to trading business and acquiring exchanges. Ultimately, you created the globally influential stablecoin USDC. And now, you are launching this new public chain, Arc.

First, I want to ask, why does the world need another blockchain? What is lacking in the existing infrastructure, and what can the new chain achieve that was previously impossible? What experiences along the way prompted you to decide to build your own blockchain?

Jeremy Allaire: It goes back to the founding of Circle. From late 2012 to 2013, what attracted me to this field was the concept of programmable money, where the network itself becomes a computer capable of running applications.

Our idea was to build an internet dollar protocol, akin to the "HTTP protocol of the currency domain." To achieve this goal, we needed a computer network to build higher-level protocols on top of it, to scale and ensure usability.

Our philosophy gradually solidified: to ensure that the digital dollars we issue and the accompanying protocols can operate anywhere. We hope USDC can be used directly by users as easily as Spotify or Netflix. As long as there is a blockchain network, digital dollars can operate normally and be easily integrated. Subsequently, we built an interoperability layer to connect various networks and ensure the secure flow of assets.

When stablecoins first emerged, people found that they addressed the pain points of fund transfers, and the demand for non-speculative real-world use cases began to grow.

Regulators then started to scrutinize this sector, and if global financial institutions are to connect to the blockchain, the blockchain itself must meet a series of standards.

We began communicating with many institutions focused on stablecoins and their practical applications, only to find that there was no blockchain specifically designed for this upcoming mainstream era.

Thus, we decided to build a brand new operating system and network—Arc. This infrastructure can meet high standards and gain recognition from central banks: this network can carry real funds and investment contracts.

We hope to create a network owned by a wide range of stakeholders, where users of the network are also its owners. During the process, we clearly realized that the primary users, software deployers, and operating entities of this network in the future are likely to be AI.

So we began researching various related issues, and we are still exploring. The core direction of our product design is to transition to an intelligent economy, which is the background of the project.

Arc: A Compliant Financial Underlying Network for Global Multi-Party Participation

Robert Hackett: Chris, you have seen countless new blockchain projects' funding pitches. What makes you believe that the market still has room for a new public chain?

Chris Dixon: When we invest, what we value most is the team that Jeremy has built.

At the same time, I resonate with his vision. I have mentioned in many articles and speeches that this is a new type of computer—a global financial computer, which holds enormous platform potential and can give rise to new applications.

Additionally, I believe Jeremy has a profound understanding of regulation and international dynamics. Currency has a strong network effect, USDC itself has significant influence, and the dollar is widely recognized globally. Arc has the opportunity to become a global monetary underlying network.

Jeremy, I would like to hear you talk about your international layout. How do you consider the complex environment of various governments and regulatory bodies?

Jeremy Allaire: The uniqueness of Arc lies in the fact that to operate network infrastructure and participate in staking validation nodes in the future, operators must meet stringent operational, information security, and compliance standards.

Infrastructure operators must adhere to these standards and sign service level agreements to enable the network to achieve deterministic settlement outcomes in a very short time. This is crucial for real fund transactions.

On the other hand, we envision an internet-native economic operating system that can support a complete range of economic activities. Its functions far exceed payments; various financial contracts, economic contracts, and governance decisions can operate on it.

To achieve internet-level scale, the network must have diverse geo-economic and geopolitical distributions. The operation and governance of the infrastructure must maintain credible neutrality for all stakeholders, which is one of our commitments.

Leading institutions in global capital markets, asset management, and payment sectors, as well as large banks covering markets in Europe, America, and Asia, have already participated. This is just the beginning; we hope to attract a more diverse range of infrastructure participants.

We look forward to the future where major geo-economic sectors around the world can operate this infrastructure, holding substantial economic rights within the network, with local leading enterprises using this infrastructure. This is crucial; without a diverse ecosystem, it is difficult to achieve internet-level adoption. Tools like blockchain and distributed governance can support this goal, which is also our core driving force. Of course, everything is still in the early stages.

Moat: Stablecoin Liquidity, CCTP Cross-Chain Infrastructure

Robert Hackett: Jeremy, how do you view your moat and competitive barriers?

Jeremy Allaire: First is the stablecoin network, including USDC, euro stablecoins, and other digital assets we issue. We also have tokenized Bitcoin products, as well as leading tokenized government bonds and money market products. USDC is undoubtedly the core of the entire system.

The more applications that connect to the network, the stronger its utility becomes. Subsequent developers will naturally choose this network because the ecosystem is rich enough to create a powerful utility flywheel.

Our quarterly stablecoin minting and redemption scale reaches $150 billion, and we connect to major global banking systems. The ample liquidity in the on-chain primary and secondary markets brings strong competitiveness. Platforms like Binance, Coinbase, and Hyperliquid have deep underlying liquidity, enhancing capital efficiency, and other products that require efficient capital will benefit from this.

This is the utility network effect and liquidity network effect. In addition, there is the infrastructure moat; we have built compliant infrastructure in many locations around the world, which has a high barrier to entry.

There is also interoperability infrastructure; Circle's Cross-Chain Transfer Protocol (CCTP) is currently the most widely used cross-chain protocol across all blockchains and asset classes. Its popularity is due to USDC being the largest digital currency circulating across networks.

One of the highlights of Arc is that any asset issued on Arc, whether tokenized equity, stablecoins, or tokenized credit products, can access CCTP's transfer capabilities.

In simple terms, we have built a highway for value transfer, where previously only USDC could travel. Now, all asset issuers can use this high-speed network to share interoperability and liquidity.

The stablecoin market is dominated by a few, but it is not a monopoly. As the market size grows from hundreds of billions to trillions, multiple networks will exist.

Returning to Arc itself, I believe the industry is entering a new phase. In my view, blockchain is essentially an economic operating system that attracts developers and assets.

This sector still has vast space; currently, no single entity firmly occupies developers' minds. Compared to traditional internet platforms, the number of active developers on all public chains is very small, and the industry is still in its early stages. So my judgment is that no one has an absolute moat.

Additionally, the core participants in the future ecosystem will be AI developing software. Behind AI, there may be humans, or there could be scenarios where AI autonomously develops software; AI will act as an intermediary to complete various economic tasks.

AI + Blockchain, Giving Rise to New Credit and Economic Models

Chris Dixon: I believe that in the next 10 to 20 years, the digital economy landscape will be restructured, and the rise of high-performance blockchains (like Arc) coincides perfectly with this time window. I tend to use the framework of "physical applications" and "native applications" to understand the industry. In the early stages of new technology, people simply moved existing scenarios onto the platform, such as trading and human payments.

But in a few years, the most exciting moments will arrive: developers will truly unleash their imagination and create new things.

Jeremy Allaire: I completely agree. We hope to provide a fertile ground for developers and entrepreneurs to innovate freely.

Credit is one example. A brand new blockchain operating system, a fully reserved digital dollar base, combined with AI, can create entirely new credit tools, where both the supply and demand sides of funds can be humans or machines. This type of credit market will resemble an advertising bidding platform rather than the traditional model of bundling bonds for sale.

Market structure, unit economic models, distribution patterns, and coverage will all change fundamentally. Tokenized real-world assets (RWA) have already allowed more people to participate in equity investments, providing more ways to utilize assets, and we have seen early signs of this.

Robert Hackett: Jeremy, what is the most unusual project you have seen being built by developers on Arc?

Jeremy Allaire: A few days ago, I saw a project called Fly Brain; I am not clear about the background of the development team. The project compiles all neural information from a fruit fly's brain and the actual computational rules of the fruit fly's brain into 16MB of bytecode, running on Arc.

Developers are using AI to build an interactive layer, where these "fruit fly brains" evolve and interact autonomously within the network. I have not yet studied its token incentive mechanism and am unsure of its design purpose.

My first reaction was, what is this actually for? I even asked on X. The project came with a lot of explanations, claiming it could help achieve breakthroughs in scientific research; of course, it could also just be a gimmick. But this project itself represents a trend: when AI combines with such computer networks and economic mechanisms, people will begin to attempt various imaginative innovations.

Robert Hackett: The fruit fly brain network on Arc gives "agent clusters" a new meaning.

Jeremy Allaire: There is another upcoming project called Arc, specifically designed to handle the arbitration mechanism for AI work.

This mechanism can extend from AI jurors and AI arbitrators to human arbitrators, accompanied by a staking security model. The original intention is to address scenarios where AI is hired by AI or humans hire AI to complete tasks. In the event of a dispute, an arbitration mechanism is needed, along with rules for fund custody and disbursement.

Chris Dixon: In a sense, blockchain can hedge against the centralization trend of AI.

Machines Become Major Participants in the Internet

Robert Hackett: Chris, you wrote "Read Write Own" a few years ago when AI was still in its infancy. How have your thoughts changed since then?

Chris Dixon: In fact, the book discusses AI extensively, listing it as one of the core directions. My core viewpoint is that while AI is powerful, it inherently has a tendency toward centralization—large enterprises with substantial capital and resources will gain significant advantages. Blockchain can, to some extent, counterbalance this trend.

Open source is crucial; it is the most inclusive trend in the history of technology, with Linux being the best example. Blockchain is similar to open source, as it provides an open service, offering developers a fair underlying environment with low fees and global accessibility.

Robert Hackett: Please describe the scenario five years from now. What changes will occur in the global financial system under the integration of these new technologies?

Jeremy Allaire: To be frank, no one can provide a definitive answer at this stage. The speed of technological iteration has reached its peak in human history.

But I believe that in the coming years, a large amount of intellectual and creative work, as well as various economic transactions and value exchanges, will be dominated by AI entities. This is the machine economy, and this infrastructure will support its implementation. By then, the scale of economic output will far exceed what it is now, and the number of products and services available globally will increase by several orders of magnitude. This is the world I envision five years from now.

Chris Dixon: As Jeremy mentioned, many future scenarios are hard to imagine, but the trend direction is clear. The vast majority of participants in the internet will likely be machines. When these machines engage in activities, they inherently require economic capabilities, which is what I refer to as the network of the machine age.